Townsville Optical needs to overhaul its vision tester or buy a new one.The facts have been gathered,and they are as follows:
$$\begin{array} { | l | r | r | }
\hline & \text { Current Machine } & \text { New Machine } \
\hline \text { Purchase Price, New } & \$ 112500 & \$ 248000 \
\hline \text { Current book value } & 33500 & \
\hline \text { Overhaul needed now } & 82500 & \
\hline \text { Annual cash operating costs } & 70000 & 40000 \
\hline \text { Current salvage value } & 50000 & \
\hline \text { Salvage value in five years } & 18000 & 70000 \
\hline
\end{array}$$
Required:
Which alternative is the most desirable with a current required rate of return of 15%? Show computations,and assume no taxes.
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Question

Townsville Optical needs to overhaul its vision tester or buy a new one.The facts have been gathered,and they are as follows:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Current Machine } & \text { New Machine } \
\hline \text { Purchase Price, New } & \$ 112500 & \$ 248000 \
\hline \text { Current book value } & 33500 & \
\hline \text { Overhaul needed now } & 82500 & \
\hline \text { Annual cash operating costs } & 70000 & 40000 \
\hline \text { Current salvage value } & 50000 & \
\hline \text { Salvage value in five years } & 18000 & 70000 \
\hline
\end{array}$$ 
Required:
Which alternative is the most desirable with a current required rate of return of 15%? Show computations,and assume no taxes.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Quizplus · Accepted Answer

The Answer of Townsville Optical needs to overhaul its vision tester or buy a new one.The facts have been gathered,and they are as follows:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Current Machine } & \text { New Machine } \
\hline \text { Purchase Price, New } & \$ 112500 & \$ 248000 \
\hline \text { Current book value } & 33500 & \
\hline \text { Overhaul needed now } & 82500 & \
\hline \text { Annual cash operating costs } & 70000 & 40000 \
\hline \text { Current salvage value } & 50000 & \
\hline \text { Salvage value in five years } & 18000 & 70000 \
\hline
\end{array}$$ 
Required:
Which alternative is the most desirable with a current required rate of return of 15%? Show computations,and assume no taxes.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Townsville Optical Needs to Overhaul Its Vision Tester or Buy